On Multipliers, via Mark Thoma

[The government and OBR] believe that austerity generates growth and so cuts the deficit. The trouble for them is that all the evidence shows that the opposite is true: cuts shrink national income and government spending increases it.

This has attracted cheap abuse from some… Such abuse is wrong, and misses the point. It’s wrong, because – in the context he is writing about – Richard is right to claim that fiscal multipliers are big. There’s widespread agreement (pdf) that multipliers are bigger in recessions (pdf) than in normal times. For example, Lawrence Christiano, Martin Eichenbaum, and Sergio Rebelo say (pdf):

The government-spending multiplier can be much larger than one when the zero lower bound on the nominal interest rate binds.

The fact that Osborne’s austerity has failed to cut the deficit as much as expected is wholly consistent with this. Bigger multipliers than Osborne assumed meant that austerity depressed output by more than he expected thus making it harder to reduce borrowing.

…..

The political point is that Labour supporters should not rely upon a big multiplier as a case for fiscal expansion. And … Lots of leftist policies … can be designed without reliance upon fragile claims about the macroeconomy.

And not all ethical considerations need short- or medium-term macroeconomic validation. But as proposed in my book, Unicycle, if nature has an ethical sense of direction, and markets are necessarily rooted in nature, then there is a right way to go in macro.

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Unicycle, the Book of Fictitious Symmetry and Non-Random Truth (Nature’s Democratic Pi)

The 2nd edition paperback is now available online and at your local bookstore, in many countries.

Unicycle, the Book of Fictitious Symmetry and Non-Random Truth (Nature’s Democratic Pi)

The observation that nature is asymmetric allows us to introduce reasoning that is as organized as the logic of symmetries currently in use, by using symmetry as a foil in a proof by contradiction.

One result is the discovery that nature, the universe, does indeed have a non-random sense of direction with fortunate ethical consequences and implications for political science and other fields of inquiry.

"Very scrupulously set out. It is extremely well written and beautifully literate." -Dr. Diané Collinson, author of Plain English, Fifty Major Philosophers, Fifty Eastern Thinkers, coauthor of works including the Biographical Dictionary of Twentieth-Century Philosophers